Bay Harbor Islands, FLORIDA (October 18,2007) ?Triple-Net (NNN) investment opportunities in U.S. markets are attracting the attention -- and funds -- of German banks, REITs and investors, reports Horn Capital Realty, Inc. (www.nnninvestors.com) of Bay Harbor Islands, Florida. ?These conservative types of passive real estate investment can be more rewarding than typical real estate ownership because they require virtually no management,? says Jonathan S. Horn, President, who has personally handled over $500 million in triple netlease sales, sale-leaseback financing, build-to-suit development and debt and equity placements throughout the United States. ?The rate of return and benefits from investing in a triple net (NNN) investment can be greater than your typical real estate investment, without taking into consideration any tax issues,? said Horn. His firm has dealt with such large national tenants as Blockbuster Entertainment, Eckerd Drug, Kmart, Home Depot, Wild Oats markets, Taco Bell, Wal-Mart and Walgreen Drug Stores.
A triple net lease (NNN) transactions is typically described as a free-standing facility occupied by a single-tenant on a long-term triple-net lease. A NNN can be described as a bond-like investment encompassed by real estate. A NNN can be structured in three ways:
1. Sale-leaseback financing is structured through the sale of a property owned by a tenant who sells it to an investment group and leases it back on a long-term lease. 2. The sale of an existing NNN property leased to a tenant owned by a third party investor. 3. Build-to-Suit. A developer enters into a long-term agreement with a corporate tenant and then sells the transaction upon completion of the development or before.
A triple-net lease is typically between 10 to 25 years. The tenant pays a negotiated annual rent equal to 6% to 10% of the contracted sale price. Most often that rate is credit-driven. In other words, tenants with investment grade ratings pay a lower rate because they are perceived as less risky, while non-investment grade tenants typically pay a considerably higher rate. This is similar to corporate bonds. A triple-net lease property frees the investor/landlord from any property responsibility. The tenant agrees to pay all costs associated with the property use and occupancy, including real estate taxes, insurance, improvements, on-site property management and maintenance.
Page 2 ? NNN Investments
As an example, Horn is currently negotiating a sale-leaseback transaction between a group of German investors and a U.S. retailer, offering 6 single-tenant properties valued at $5 million US each, or $30 million US total. Since the company has earned a high credit rating, the investors have agreed to a flat rental payment of 6.4% for the entire lease term, which equates to a predictable return of $1,920,000 US annually to the investors. With a NNN lease, the U.S. retailer will be responsible for all expenses, including taxes, insurance, management, general and structural repairs, maintenance and improvements. National Real Estate Investor, a leading U.S. trade press magazine has reported, ?The sale-leaseback industry has restructured the ownership of trillions of dollars worth of the nation's (U.S.) corporate real estate assets, and the trend seems to be continuing.? Another respected publication, Institutional Investor, stated: ?The triple-net lease offers a long-term lease with the guarantee of steady cash flow and practically no risk.? Primary Investor Benefits ?The investor, whether it be a bank, a trust, a real estate investment trust (REIT) or an individual, earns an 6% to 10% yield on the annual lease and usually benefits from a conservative 2% to 5% annual (compounded) appreciation on the property's value. Due to the annual depreciation allowance on the building, an equal portion of the annual yield also is sheltered from Federal income taxes,? Horn explained. ?For overseas investors, there is the security of both the tenant and the real estate, and there is minimal risk with investment grade tenants, as well as an opportunity for even higher annual cash returns from below investment grade tenants.? he added. ?The investor owns the property with zero on-site management responsibilities while enjoying an annual high interest cash return on a passive investment. These are bond-type investments with excellent ?coupon clipper?-type of returns.? Triple Net Lease transactions generally require a long-term investment of $2 million US to $100 million US or more. Such investments are available for all types of existing or build-to-
Page 3 ? Sale/Leaseback & NNN Investments
suit real estate, including service centers, fast food establishments, industrial and health care facilities, office and educational buildings, distribution warehouses and retail stores. At any time, the investor/landlord can cash-out, often with a profit, by selling the property. When the lease term expires, the investor has numerous options: a) Hold the property,; b) allow it to further appreciate in market value; c) lease it again at a higher rate to the original tenant or a new tenant., or d) sell it to a developer to be renovated for a higher use. Horn Capital Realty, known as one of the most experienced, efficient and cost-effective facilitators, specifically focuses on sale-leaseback financing and NNN transactions. The company is currently working with several very large American firms seeking financing for their properties.
Sure, the Managing Directors and other senior people make several million a year on average; group heads can make $10 million or more. And the CEO of an investment bank can make upwards of $20 million, with Goldman Sachs CEO Lloyd Blankfein making over $70 million in 2007.
But what does an entry-level investment banker - an investment banking analyst - actually make? Making six figures as a 23-year old just out of college is nice, but if you have to work 120 hours per week, you can't possibly be making that much per hour, right?
I honestly didn't know, so I had to investigate this and do some math myself. Could you actually make more working at McDonald's than you could at Goldman Sachs, at least on an hourly basis?
For investment banking analysts, the best case scenario ever happened in 2007. Base salaries were $60,000 and bonuses were $90,000, for a total of $150,000 in compensation. Again, not bad for a 23-year old's first "real-world job."
But what about the hours? Typically, entry-level bankers work around 90-100 hours per week in their first year. This could be off by a bit, but we'll go with it for now.
With 52 weeks of work per year (nope, no vacation) and 90 hours per week, you would have earned $32.05 per hour in the 2006-2007 year. If you had worked 100 hours, that would have dropped to $28.85.
Even if you had worked 140 hours a week, every week, you would still be at $20.60 per hour. And realistically it's impossible to work that much consistently, so you could have only done better than that.
But times have not always been that good. After the Nasdaq crash and at the start of the last major recession, investment banking took a turn for the worst and bonuses disappeared.
In 2001-2002, Analysts were lucky to get $10,000 for their bonuses. They still worked a lot, but mostly on marketing and pitching clients rather than doing deals and bringing in revenue.
A $10,000 bonus and $60,000 salary means $14.96 per hour at 90 hours a week. Believe it or not, that's still above McDonald's wages and is actually not even that bad relative to a lot of jobs in the US.
But if you had worked 140 hours per week, consistently, back then? You would have made 9.62 per hour.
According to a Wiki Answers page on McDonald's, the wage is $9.30/hour for those under 17 and $9.57/hour after "4 months of training."
This is a very low wage, and it looks like even in the worst possible years of investment banking, hourly analyst wages never dropped this low.
Actually, the above is not strictly true. What if you earned $0 for the bonus and only made the base salary of $60,000 while working 140 hours each week?
That would be $8.24 per hour. Finally: below McDonald's wages. So theoretically it is possible to earn less than a McDonald's worker as an investment banking analyst, though not terribly likely.
It could only happen if you worked a ridiculous amount in the very worst years of investment banking and got absolutely nothing for your bonus.
Even with a looming US recession, this scenario seems unlikely to return anytime soon. So your hourly wages as an investment banking analyst should be safe.
Both Groshan Fabiola & Ian Spellfield are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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